Energy stocks close sharply higher

Surge in crude, natural gas prices ignite rally

By

LisaSanders

NEW YORK (MarketWatch) -- Energy stocks racked up a stellar session Tuesday, riding a 2.3% surge in spot crude oil prices and nearly an 8% advance for natural gas futures.

Supply disruptions following a fresh round of rebel attacks on Royal Dutch Shell oil fields in Nigeria triggered the move in the commodities, sending the New York Mercantile Exchange's March crude oil contract 2% higher to $61.10 a barrel. See Futures Movers.

Natural gas futures also joined the act, with a cold snap across much of North America triggering nearly an 8% rebound for the March contract. The spike reclaimed some of the territory natural gas futures have lost over the past two weeks, creating what many traders called an oversold condition.

The Philadelphia Oil Services Index
OSX, -2.22%
was the biggest beneficiary of the higher commodity prices, leading the sector with a 3.8% advance to 202.09 points -- its first close above the 200 mark in a week.

The Amex Oil Index
$XOI
caught the same wave, rising 1.1% to 1,058.01, joined by the Amex Natural Gas Index
$XNG
which finished with a 1.5% gain at 410.95 points.

Royal Dutch Shell
RDS.A, -0.68%
on Sunday said it halted 455,000 barrels a day of production after a group called the Movement of the Emancipation of the Niger Delta kidnapped nine foreign oil workers.

Shell said Tuesday it has extended a force majeure that legally protects it from not meeting its contractual obligations on Nigerian crude-oil exports from the EA field and Forcados oil fields.

A company spokesman said the original force majeure, declared in January after militant attacks, had been previously expected to end by late February. The extension has no time limit, he added.

"The attacks in Nigeria on a pipeline, and the kidnapping of oil workers is nothing new for that region," said Kevin Kerr, a veteran commodities trader.

"What is new is the ferocity and intensity with which the attacks are happening. The group responsible is relatively unknown and is growing. Shell's shutdown of their major facility there and the destruction of the pipeline will certainly disrupt supply," he added.

New York-traded shares of Shell was one of only two issues in the Amex Oil Index to lose ground Tuesday, falling 0.8% to close at $62.27. Total S A
TOT, -1.32%
was the other one, slipping 0.3% to $128.91.

ConocoPhillips
COP, -2.48%
led percentage gainers, up 2.9% at $62.83 a share.

ConocoPhillips said it replaced 230% of its reserves in 2005 by adding 1.553 billion barrels of oil-equivalent. Total reserves now stand at 9.4 billion oil-equivalent barrels. Excluding sales and acquisitions, ConocoPhillips' replaced 100% of reserves.

"The improvement in 2005 from 2004 is attributable to extensions and discoveries from our legacy projects in Qatar, the United States and the Asia Pacific region, as well as our re-entry into Libya and our increased equity ownership in LUKOIL," said Bill Berry, executive vice president of Exploration and Production, in a statement.

In the oil services group, the biggest gains for the day were logged by Baker Hughes
BHI, -1.84%
up 6.3% at $72.85, GlobalSantaFe
GSF, -0.29%
up 5.7% at $55.60, and Smith International
SII, +1.93%
which finished the session 5.6% higher at $40.58.

Gains in the natural gas group were paced by Devon Energy Corp.
DVN, -2.50%
China National Offshore Oil Corp. signed a production sharing contract with Devon Energy for a block in the South Yellow Sea, CNOOC Ltd.
CEO, -0.58%
said. It is the 11th contract between Devon and CNOOC.

Devon also got a boost from Moody's Investors Service, which said Tuesday it had placed it on review for possible upgrade.

Moody's said the action reflects the Oklahoma City-based independent producer's consistent operating performance and diminishing risk as it transitions from an acquisition-based growth strategy to one that puts more emphasis on internal growth.

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